Gonzalo Rodríguez y Fatima Z. Bensar. Saudi-Spanish Centre for Islamic Economics and Finance. IE Business Scshool
28 February 2017
Morocco has just authorized the creation of Islamic banks, taking a first step toward converting the country into an Islamic finance hub in Northern Africa.
It is well known that the sun sets in the west, but less known that the Arabic for Morocco is Maghreb, which means the land of the setting sun, because it is the Arab country situated furthest west.
This fact may explain why Morocco has been the last Arabic-Muslim country to authorize the creation of Islamic banks. Now, the kingdom has opened its doors to an industry which has grown at a rate of 18% over the last five years to achieve a worldwide market value of 2 trillion dollars, making up 1% of global financial assets and looking set to reach 3.5 trillion in 2021, according to the latest Reuters ICD-Thomson Reuters report.
After a long period of negotiations, Morocco’s central bank approved the creation of 5 Islamic Banks and permitted 3 affiliated French banks (Société générale, BNP Paribas and Crédit agricole) to offer Islamic finance products.
The five authorized Banks, which are made up of alliances between Moroccan banks and banks from the Persian Gulf, are:
1. Credit Immobilier et Hotelier (CIH), associated with Qatar International Islamic Bank.
2. Banque Marocaine du Commerce Extérieur (BMCE), together with the Al Baraka Banking Group of Bahrein.
3. Banque Centrale Populaire (BCP) in collaboration with Saudi Arabia’s Guidance Financial Group.
4. Crédit agricole du Maroc (CAM), in collaboration with Islamic Corporation for the Development of the Private Sector (ICD), a subsidiary of the Islamic Development Bank based in Jeddah, Saudi Arabia.
5. Attijariwafa Bank, currently acting alone, although it has already begun conversations with possible partners.
In the Islamic finance sector there is constant debate about the use of the term “Islamic” to refer to financial products that respect the law of Islam. In the case of Morocco, the country has opted to call Islamic banks “participative banks”, probably to keep the term “Islamic” free from association with internal Islamic movements.
In any case, the designation as a participative bank is coherent with the principals of Islamic law, the interpretation of which means that banks should participate in terms of both risks and profits of the projects and operations that they finance, and which strictly forbids the bank from obtaining revenue by charging interest. This project funding mechanism is very much in line with traditional project finance.
You might think that a country like Morocco, where the majority of the population are Muslims, would not encounter many difficulties once it has decided to open its doors to the Islamic banking industry. On the contrary, the process of introducing Islamic banking has been long and complex given the legal and tax reforms required in order to adapt to Islamic finance products.
The first signs of progress came with the approval in 2014 of the law proposing the introduction of participative banks in Morocco, along with other Islamic finance products, specifically takaful and sukuk, which are sharia compliant insurances and bonds, respectively.
The second breakthrough came in 2015, when a supervisory body for the new participative finance sector was created. The members of this body were mostly experts in Islamic law, known in the industry as sharia scholars, and professionals from the finance industry.
Following the final authorization in 2017, and in accordance with the IRTI-Reuters Morocco Islamic Finance Country Report, it is estimated that the participative banking sector could make up between 3 and 5% of Morocco’s financial system by 2018, and attract mayor investments form the Gulf region and South East Asia totaling at least 7 billion.
Following this major step in the Islamic banking segment, Morocco is now planning entry into the Islamic debt market in the first semester of 2017 by issuing sukuk, namely Islamic bonds.
In short, Morocco is on track to, in the medium term, become the Islamic finance hub in North Africa.
In our opinion, this move is certainly an interesting experiment that is worth following closely. It can have potential beneficial effects for Spain, mainly where investments are concerned. It will also be necessary to gauge whether Islamic banks are capable of understanding and meeting the needs of the people of Morocco, which, although it appears to be interested, is a country where only 65% of the population use banks.